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  2. 2. Scope of Discussions / Objectives • Introduction to Strategic Management • Strategic Purpose – Vision / Mission etc. • Environmental Scanning – PESTEL / SWOT etc. • Strategy Development - Multiple Approaches • Corporate Strategy – Various Facets • Business Strategy - Generic / Hybrid etc. • Global Strategy – Products & Services Adaptation / Choice of Market Entry
  3. 3. Learning Outcomes • • • • • • • Differentiate Strategic Management from Operational Mgt & identify the strategy development Process including different levels of Strategy Articulate the purpose of an organization’s existence & communicating the same to all stakeholders Analyze the key structural drivers in the business environment to identify opportunities / threats and strategic gaps Discuss contemporary approaches to strategy development processes / evaluation of strategic choices ; assess the role of a corporate parent in a multi-business organization and it’s value adding capabilities in managing a porfolio of businesses Contrast the different bases of achieving competitive advantage and outline the means to achieve sustainability in a competitive environment for an SBU Outline the ways to go global and achieve global competitiveness and identify risks involved Discuss the Key tasks for effective strategy implementation and assess how to align them
  4. 4. Introduction to Strategic Management
  5. 5. Customer Retention Key Issues A Recent Survey says – “More than 90 % •customers do not of unsatisfied complain” costs 5 times get a • “It customer thanmore to to keepnew it does a current customer” 5
  6. 6. Customer Expectations / Desire 6 What do Customers look for in Any Product or Service? • Right Price (affordability factor) • Right Quality (reliability factor) • Right Delivery (service factor)
  7. 7. Dawn of a New Era …………….. Old Perceptions • • Price : Seller’s Cost plus Profit Quality : Standards determined New Realities • • Price : What customer is willing to pay Quality : Standards determined by the customer by the Seller • Marketing : A distinct Functional • Marketing : Is Everything / The whole Business is Marketing Activity • Focus on What is good for the • customer company • Customer’s freedom of choice • Customer doesn’t know a thing Customer’s freedom of choice unlimited limited • Focus on What is good for the • Customer is the King
  8. 8. What is Strategy? • • • • Large-scale, future-oriented plan Used to interact within competitive environment to achieve company goals Provides a framework for managerial decisions Reflects a company’s awareness of the main elements of competition
  9. 9. Definition of Strategy Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations. Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  10. 10. Strategic decisions Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  11. 11. Strategic Decisions are Likely to : • • • • Be complex in nature Be made in situations of uncertainty Affect operational decisions Require an integrated approach (both inside and outside an organisation) • Involve considerable change Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  12. 12. The Nature of Strategic Management Strategic management: The set of decisions and actions that result in formulation and implementation of plans designed to achieve a company’s objectives
  13. 13. Strategy and Operations Strategic Management holistic Organisation-wide, Operational M anagement Conceptualisation of issues Creating new directions Techniques and actions Routinised Developing new resources Ambiguous / uncertain Managing existing resources Operating within existing strategy Operationally specific Long term Day to day issues Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  14. 14. Managers’ Strategic Thinking (Current Status & Future Prospects)  “ Where are we now?” ( market standing / competitive pressures / strengths & weaknesses)  “ Where do we want to go?” (direction in which management believes the company should be headed)  “ How will we get there?” (crafting & executing a strategy to get the company from where it is to where it wants to go)
  15. 15. Contribution of Leading Management Gurus Igor Ansoff’s Strategic Success Paradigm  Based on extensive research study on Acquisitions by American Companies (1948-1968)  Acquisitions based on a rational strategy fared better than those based on opportunistic decisions The Key Elements of the paradigm are – • No universal success formula for all firms • Environment turbulence determines the strategy required for the success of a company • The strategy aggressiveness should be aligned with the environmental turbulence
  16. 16. Ansoff Matrix / Ansoff Grid Existing Products New Products Existing Market Market Penetration Product Development New Market Market Development Diversification
  17. 17. Ansoff’s Matrix  Provides four different growth strategies  Market Penetration – Companies seek to achieve growth with existing products in their current market segments .  Market Development – Companies seek growth by targeting it’s existing products to new market segments  Product Development – Companies develop new products targeted to it’s existing market segments.  Diversification – Companies grow by diversifying into new business by developing new products for new markets.
  18. 18. Ansoff’s Matrix and Risk The greater the degree of newness, the greater is the degree of risk • Market Penetration – little risk involved • Market Development – moderate risk • Product Development – moderate risk • Diversification – high degree of risk as both product and market are new & unknown
  19. 19. Ansoff’s Matrix – Use & Application • The Matrix is a framework to explore directions for strategic growth • It is the most commonly used model for analysing the possible strategic direction that a business should take • It not only identifies and analyses different growth opportunities, it also encourages planners to consider both expected returns and risks • However, real world examples do not fit neatly into the four cells of the Ansoff’s Matrix
  20. 20. • The management capabilities should be aligned with the environment to optimize the company’s success • Book “Corporate Strategy” (1965) – played a key role in the development of strategic planning • Introduced concepts – “Gap Analysis” & “Synergy” Mintzberg – Strategy as Craft  Added a new dimension to strategic management by bringing the personal side of the manager  Book “The Nature of Managerial Work (1973)” – advocated a more
  21. 21.  Saw strategic formulation as a delibrate and delicate process Peter Drucker’s Contribution • • • “Management is not just passive & adaptive behaviour” Managing implies responsibility for attempting to shape the economic environment for planning and carrying through changes in that economic environment Major contribution to business strategy was the introduction of MBO concept (1954)
  22. 22. Michael Porter : Strategy and Competitive Advantage  Introduced generic strategies like focus, cost leadership, cost differentiation etc.  Five Forces Theory – • • • • •  the threat of new entrants the bargaining power of customers the bargaining power of suppliers the threat of substitute products the rivalry between existing players Books – “Competitive Strategy” (1980) and “ The Competitive advantage of Nations” (1990)
  23. 23. 1-23 Three Levels of Strategy • Corporate level: board of directors, CEO & administration [Highest] • Business level: business and corporate managers [Middle] • Functional level: Product, geographic, and functional area managers [Lowest]
  24. 24. LEVELS OF STRATEGY • Corporate level – Determine overall scope of the organisation – Add value to the different business units – Meet expectations of stakeholders • Business level (SBU) – How to compete successfully in particular markets • Operational – How different parts of organisation deliver Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  25. 25. Levels of Strategic Management
  26. 26. 1-26 Strategy Makers • Ideal strategic team includes decision makers from all three levels • Top managers must give final approval • Strategic decisions coincide with managers’ responsibilities
  27. 27. 1-27 Strategy Makers: The CEO • A firm’s CEO plays a dominant role • • • in strategic planning The CEO’s principal duty is giving long-term direction to the firm The CEO bears ultimate responsibility for the firm’s success and strategic success CEOs are typically strong-willed, company-oriented individuals
  28. 28. 1-28 Benefits of Strategic Management • Managers at all levels interact in planning and • • • implementing strategy Similar to participative decision making Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones Promoting positive behavioral consequences enables achievement of financial goals
  29. 29. 1-29 Strategic Management Process • Businesses vary in formulation and other processes • The basic components of the models used to analyze strategic management are similar • Strategic management is a process—a flow of information through interrelated stages of analysis towards the achievement of organisational goals
  30. 30. Components of Strategic Management Model • Internal Analysis • Company Mission • Strategic Analysis & • External Analysis Choice • Long-Term Objectives • Generic & Grand • Short-Term Objectives Strategies • Policies Empowering • Functional Tactics Action • Restructuring, Reengineering & • Strategic Control & Continuous Improvement Refocusing 1-30
  31. 31. Components of Strategic Management Process STRATEGY FORMULATION Existing Business Model FEEDBACK Mission , Vision, Values & Goals External Analysis: Opportunities & Threats SWOT Strategic Choice Internal Analysis: Strengths & Weaknesses Functional – Level Strategies Business - Level Strategies Global Strategies Corporate – Level Strategies STRATEGY IMPLEMENTATION Designing Organization Structure Governance and Ethics Designing Organization Culture Designing Organization Controls
  32. 32. Strategic Purpose
  33. 33. Organization – Core Philosophies Vision Statement • An inspiring statement of what the organization • • • • intends to become and to achieve in the future “What we want to be” The statement incorporates our Beliefs Should project a compelling story about the future (E.g. Steve Jobs : “ An Apple on Every Desk”) Is culture-specific :Simply put, the vision could state what the founder ultimately envisions the business to be – in terms of growth, values, employees, contribution to society, etc
  34. 34. 1-34 What is a Company Mission? • Company Mission: A broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.
  35. 35. Organization – Core Philosophies… Mission Statement • • • Spells out how we see ourselves fulfilling our ideas of “What we want to be” in broad terms Describes the overall purpose of the organization Is an organization’s vision translated into written form- spelling in concrete terms the leader’s view of the direction and purpose of the organization • • • What do we do? How do we do it? For whom do we do it?
  36. 36. 1-36 The Need for an Explicit Mission • Why is this firm in business? • What are our economic goals? • What is our operating philosophy in terms of • • • quality, company image, and self-concept? What are our core competencies and competitive advantages? What customers do we and can we serve? How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?
  37. 37. 1-37 Formulating a Mission • The typical business begins with the beliefs, desires, and aspirations of a single entrepreneur • These beliefs are usually the basis for the company’s mission • As the business grows or is forced to alter its product, market, or technology, redefining the company mission may be necessary
  38. 38. 1-38 Mission Statement Components         Customer-market Product-service Geographic Domain Technology Concern for Survival Philosophy Self-concept Concern for Public Image
  39. 39. Inputs to the Development of Company Mission 1-39
  40. 40. Organization – Core Philosophies… Values • • • Both the mission and vision statements reside in a “sea of values” Organizational beliefs – respect for people, concern for individuals, approach to innovation, reward system, encouragement for Team work etc Describe what your Management Team really cares about – “what it holds dear” (e.g. “How do your managers respond to a trade-off between product quality and profit? That’s really a question of values”.)
  41. 41. Organizational structure – Philosophical Hierarchy Vision Mission Corporate Objectives Corporate Goals Strategic Plans Policies Procedures Core-Values & Conduct
  42. 42. 1-42 Perceived Stakeholders • • • • • Customers Government Stockholders Employees Society
  43. 43. Corporate Social Responsibility Internal Aspects External Aspects Employee welfare Environmental issues Working conditions Products Job design Markets and marketing Intellectual property Suppliers Employment Community activity Human rights Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  44. 44. 1-44 Types of Social Responsibility • Economic – the duty of managers, as agents of the company owners, to maximize stockholder wealth • Legal – the firm’s obligations to comply with the laws that regulate business activities • Ethical – the company’s notion of right and proper business behavior
  45. 45. Corporate Governance The governance framework • whom the organisation serves • how the purposes and priorities should be decided • how an organisation should function • how power is distributed among stakeholders Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  46. 46. Environmental Scanning
  47. 47. 1-47 Firm’s External Environment
  48. 48. 1-48 Layers of the business environment
  49. 49. Macroenvironment – PESTEL (1) 1-49
  50. 50. Macroenvironment – PESTEL Political • Government stability • Taxation policy • Foreign trade regulations • Social welfare policies Economic • • • • • • • Business cycles GNP trends Interest rates Money supply Inflation Unemployment Disposable income Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  51. 51. Macroenvironment – PESTEL Sociocultural • Population demographics • Income distribution • Social mobility • Lifestyle changes • Attitudes to work and leisure • Consumerism • Levels of education Technological • Government spending on research • Government and industry focus on technological effort • New discoveries /developments • Speed of technology transfer • Rates of obsolescence Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  52. 52. Macroenvironment – PESTEL Environmental • Environmental protection laws • Waste disposal • Energy consumption Legal • • • • Competition law Employment law Health and safety Product safety Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  53. 53. Porter’s Five Forces Model • Risk of Entry by Potential Competitors • Threat of Sustitutes • Bargaining Power of Buyers • Bargaining Power of Suppliers
  54. 54. The Five Forces Framework Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  55. 55. Five Forces Analysis The threat of entry ... Dependent on barriers to entry such as: • • • • • • • • economies of scale capital requirements of entry access to supply or distribution channels customer or supplier loyalty experience expected retaliation legislation or government action differentiation Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  56. 56. Five Forces Analysis Threat of substitutes Reduction in demand for products as customers switch to alternatives: • Product for product substitution – e.g. email for post • substitution of need – e.g. reliable and cheap appliances reduce need for maintenance services • generic substitution – competition for household income, e.g. cars versus holidays – doing without Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  57. 57. Five Forces Analysis Buyer power is likely to be high where there is / are: • • • • • a concentration of buyers many small operators in the supplying industry alternative sources of supply low switching costs components/materials that are a high percentage of cost to the buyer leading to “shopping around” • a threat of backward integration Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  58. 58. Five Forces Analysis Supplier power is likely to be high where there is / are: • a concentration of suppliers • customers that are fragmented and bargaining power low • high switching costs • powerful supplier brand • possible integration forward by the supplier Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  59. 59. Five Forces Analysis Competitive Rivalry is likely to be high when: • • • • • competitors are in balance there is slow market growth (product life cycle) there are high fixed costs in an industry there are high exit barriers markets are undifferentiated Competitive rivals are organisations with similar products and services aimed at Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors the same customer group = direct competitors Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  60. 60. The SWOT Matrix Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  61. 61. Strategic Gaps • Opportunities in business environment not being fully exploited by the competition: • substitute industries • other strategic groups or strategic spaces • the chain of buyers • complementary products and services • new market segments • markets developing over time Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  62. 62. Strategic Capability Strategic capability is the adequacy and suitability Strategic capability is the adequacy and suitability of the resources and competences of an of the resources and competences of an organisation for it to survive and prosper organisation for it to survive and prosper • Resources – Tangible resources – physical assets of an organisation – Intangible resources – non-physical assets of an organisation • Competences – The activities and processes through which an organisation deploys its resources effectively Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  63. 63. Resources • Physical resources – Machines, buildings, production capacity • Financial resources – Capital, cash, debtors/creditors, suppliers of money (shareholders, bankers etc) • Human resources – Number and mix of people, skills and knowledge • Intellectual capital – Patents, brands, business systems, customer databases, “goodwill” Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  64. 64. Competences • How an organisation employs and deploys its resources • Efficiency and effectiveness of physical, financial, human and intellectual resources • How they are managed • Cooperation between people • Adaptability • Innovation • Customer and supplier relationships • Learning Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  65. 65. Resource-based View of Strategy • Competitive advantage derives from the distinctiveness of an organisation’s capabilities • Some businesses achieve extraordinary profits compared with others in the same industry • Their resources or competences permit • production at lower cost or • generation of superior product or service at standard cost Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  66. 66. The Experience Curve Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  67. 67. Implications of the Experience Curve • Growth not optional • Longer experience means lower costs • Threat of competitors gaining cost advantages • Real unit costs should decline each year • First mover advantage can be important • Accumulated experience Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  68. 68. Implications of the Experience Curve (contd) But • Sustained competitive advantage unlikely due to unachievable market share Therefore • Cost reduction becomes a threshold competence • Outsourcing may become appropriate Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  69. 69. Strategy Development
  70. 70. The Dynamics of Paradigm Change Source: Adapted from p. Grinyeh and J.-C. Spender, Turnaround: Managerial recipes for strategic success, Associated Business Press, 1979, p. 203. Exhibit 11.5 Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  71. 71. Different Processes of Strategy Development – in Multiple forms & in different contexts • There is no one right way in which strategies are developed (Eg: Fast changing environment Vs slow changing environment) • Processes of strategy development differ over time and in different contexts
  72. 72. Different Processes of Strategy Development – in Multiple forms & in different contexts (contd.) • Perceptions of how strategies develop will be seen differently by different people (Senior Executives / Middle Management / Public Sector) • It is likely that no one process describes strategy development in any organisation – normally there are multiple processes at work
  73. 73. Intended and Emergent Strategies Strategy an expression of desired • Intendeddeliberatelyisformulated or planned by strategic direction Managers • Implies that the Intended Strategy is also planned in terms of resource allocation, control systems, organisational structure etc Strategy comes • Emergentand processes in anabout through day-to-day routines, activities organisation • The Routine activities, though not direct, have a significant role in the development of strategy
  74. 74. Intended Processes of Strategy Development Strategic Planning Systems • A form of systematised, step-by-step, chronological of the procedures involving different Functions / Departments Organisation assumptions • Starting point is a set of guidelines//supply status about the external environment (price levels etc)
  75. 75. Strategic Planning Systems(contd.) Corporate • business plansPlan – resulting from the aggregation of of financial / strategic targets are • A numberbasis for performance monitoring drawn up to provide a
  76. 76. Strategic Planning Systems – Advantages / Uses • • • It provides a structured means of analysis and thinking about complex problems Encourages managers to question and challenge the current wisdom Encourages a long term view of organisational strategy (Eg: in the case of FMCG sector – 5 to 7 years) • Provides a means of coordination (between various businesses) • It communicates intended strategy from the TOP
  77. 77. A Strategic Planning Cycle Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  78. 78. Strategic Planning Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  79. 79. Emergent Processes of Strategy Development Logical Incrementalism strategy by • Is the development ofcommitmentsexperimentation and global learning from partial rather than through formulations of total strategies generalised rather • Managers have a the organisation to thaninspecific view of where they want be future be sensitive • Effective Managers try toscanning and to environmental signals through constant test changes in strategy
  80. 80. Logical Incrementalism (contd.) • • • • Commitment to strategic options may be tentative in the early stages of strategy development Experiments through subsystems (people involved in product development / product positioning / diversification etc) – building on the experience gained in that business Top managers utilise a mix of formal / informal / social and political processes – to draw an emerging pattern of strategies from these subsystems Logical incrementalism is a conscious, purposeful, proactive, executive practice – to improve available information and build people’s identification with the strategy development
  81. 81. Logical Incrementalism  Source : Strategies for Change: Logical Incrementalism ( By James B. Quinn) A Management philosophy for achieving broad organisational goals  Enables making strategic decisions in small steps  Small steps attempt to resolve conflicting views of participants  Reduces Risk by capitalizing on knowledge that is gained during the process  Logical incrementalism has the advantage of flexibility / but likely to be time-consuming and inefficient 
  82. 82. Externally Imposed Strategy • • Imposition of strategy by powerful external stakeholders Mainly Government / Regulatory Bodies – exercising norms / stipulations (Eg: Privatisation) • MNC’s being advised – for Joint Ventures / local alliances • Imposed strategy is “designed” – outside the organisation • Imposed strategy – to be implemented – might entail large capital expenditure. (Eg: In Paper Mills: Capex on Production Machinery Vs
  83. 83. Strategy Development – Additional Issues Managers Face The challenge of Strategic Drift Strategies – over period progressively • fail to address the astrategicof time – of the position company and performance deteriorates There are strong forces at that are • push organisations towardswork pattern likely to this
  84. 84. Strategy Development – Additional Issues Managers Face The challenge of Strategic Drift (contd.) Incremental • outcome of thestrategic change is a natural influence of organisational culture, collective experience, political processes and prior decisions • Strategic drift results ultimately in a complacent organisation
  85. 85. Challenges for Strategy Development • Strategic drift – Incremental strategic change influenced by • • • • organisational culture individual and collective experience political processes prior decisions – Risk of getting out of line with faster changes in environment – Need to encourage challenge and change of core assumptions • Learning organisation Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  86. 86. The Learning Organisation • • • • Traditionally, organisations are seen hierarchies and bureaucracies – set up to achieve objectives and maintain control Structures convey stability rather than change A learning organisation – is the one that is capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture – which encourages mutual questioning A learning organisation – is the one where the collective knowledge of all individuals in a company normally exceeds what the organisation itself “knows” and is capable of doing
  87. 87. The Learning Organisation (contd.) • Formal organisational structures stifle organisational knowledge and creativity • Organisations – need to look at themselves as “social networks” • Managers need to play a less directive and more facilitative role
  88. 88. Uncertain and Complex Conditions – Strategy Development • A major problem of strategic management – coping with uncertainty • Environments – differ in their form and complexity • • Simple / Static conditions – the environment is relatively straight forward to understand and does not undergo significant change (Eg. Mass production companies / Raw Material Suppliers) All Companies end up following same strategy – results in high degree of competition / low margins
  89. 89. Uncertain and Complex Conditions – Strategy Development (contd.) • • • Companies resort to scenario planning – for making sense of the future Emphasis should be to encourage individuals and groups to be forward thinking and intuitive In complex situations – an environment is difficult to comprehend
  90. 90. Strategy Development in Environmental Contexts Exhibit 11.8 Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  91. 91. Strategy Development Processes Exhibit 11.1 Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  92. 92. Strategy Development Routes Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  93. 93. Strategic Leadership • Change Agent • Individual or group that effects strategic change in an organisation • The process of influencing an organisation in its efforts towards achieving an aim or goal • Charismatic leaders • Instrumental or transactional leaders Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  94. 94. Strategic Leadership Good leaders of the strategy-making process have a number of key attributes: • Vision, eloquence, and consistency • Articulation of the business model • Commitment • Being well informed • Willingness to delegate and empower • The astute use of power Emotional intelligence: self-awareness, self• regulation, motivation, empathy, social skills
  95. 95. Corporate Strategy
  96. 96. Levels of Strategy-Making in a Diversified Company Corporate-Level Managers Corporate Strategy Two-Way Influence Business-Level Managers Business Strategies Two-Way Influence Functional Managers Functional Strategies Two-Way Influence Operating Managers Operating Strategies 2-96
  97. 97. Levels of Strategy-Making in a Single-Business Company Business-Level Managers Business Strategy Two-Way Influence Functional Managers Functional Strategies Two-Way Influence Operating Managers Operating Strategies 2-97
  98. 98. 98 Corporate-Level Strategy Corporate-Level Strategy: How do we sustain competitive advantages in our current business? What new businesses or industries do we wish to enter? Corporate strategy is used to identify: • Businesses or industries that the company should compete in • Value creation activities that the company should perform in those businesses • Methods to enter or leave businesses or industries in order to maximize its long-run profitability Companies must adopt a long-term perspective in formulating a corporate-level strategy.
  99. 99. Strategic Choices Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  100. 100. Corporate Level Issues Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  101. 101. Corporate Rationales Portfolio managers Synergy managers Parental developers Logic •Agent for financial markets •Limited SBU value creation •Synergy •Competences used to create value in SBUs Strategic requirements •Acquire assets •Divest assets •Low strategic role in SBU •Share resources/skills •Identify bases for sharing •Identify benefits •SBUs below potential (‘parenting opportunity’) •Relevant central resources •Suitable portfolio Organisationa l requirements •Autonomous SBUs •Small, low cost corporate staff •SBU performancebased incentives •Collaborative SBUs •Corporate staff as integrators •Overcome resistance to sharing •Corporate-based incentives •Understand SBUs (‘feel’) •Effective linkages •SBUs autonomous •SBU performancebased incentives Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  102. 102. Corporate Portfolio Management • Portfolio balance – Markets – Organisation’s needs • Attractiveness of business units – Profitability – Growth rates • Portfolio ‘fit’ – Synergies between business units – Synergies with corporate parent Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  103. 103. The Growth Share (or BCG) Matrix Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  104. 104. The BCG Matrix the • The BCG Matrix method is based onwhatproduct life cyclebe theory that can be used to determine priorities should given in the product portfolio of a business unit longterm a company should • To ensureof productsvalue creation, growth products inhave aof portfolio – both high – need cash inputs and low-growth products that generate a lot of cash
  105. 105. in the BCG • Placing Products company : Matrix results in four categories in the portfolio of a • • • • STARS – High Growth / High Market Share CASH COWS – Low growth / High Market Share DOGS – Low Growth / Low Market Share QUESTION MARKS – High Growth / Low Market Share frequently • BCG Matrix Method can help understand aapproach tomade strategy mistake – having a one-size-fits-all strategy : such as a generic growth target (say 10% p.a) or a generic return on capital (say 8% p.a) for the entire corporation
  106. 106. GE / McKinsey Matrix • • • The GE / McKinsey Matrix is a model to perform a business portfolio analysis on the strategic Business Units of a corporation A Business Portfolio is the collection of Strategic Business Units that make up a corporation The Aim of a portfolio Analysis is: • • Analyse it’s current business portfolio and decide which SBU’s should receive more or less investments Develop growth strategies for adding new products and businesses to the portfolio
  107. 107. • • BCG Matrix is the best-known portfolio planning framework - the GE / McKinsey Matrix is a later and more advanced form of the BCG Matrix The GE / McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects: • Market / Industry attractiveness replaces market growth as the dimension of industry attractiveness • Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed • GE / McKinsey Matrix works with a 3x3 Grid while the BCG Matrix has only 2x2 Grid (allows for more sophistication)
  108. 108. Strategic Business Units are portrayed as a circle plotted in the GE / Mckinsey Matrix, whereby: • The size of the circles represent the market size • The size of the pies represent the market share of the SBU’s • Arrows represent the direction and the movement of the SBU’s in the future
  109. 109. Generic Strategies Low-cost leadership Differentiation Focus
  110. 110. Grand Strategies  Grand strategies, often called master or business strategies, provide basic direction for strategic actions  Indicate the time period over which long-range objectives are to be achieved  Any one of these strategies could serve as the basis for achieving the major long-term objectives of a single firm  Firms involved with multiple industries, businesses, product lines, or customer groups usually combine several grand strategies
  111. 111. Types of Grand Strategies Concentrated Growth Concentrated Growth Conglomerate Diversification Conglomerate Diversification Market Development Market Development Turnaround Turnaround Product Development Product Development Divestiture Divestiture Innovation Innovation Liquidation Liquidation Horizontal Integration Horizontal Integration Bankruptcy Bankruptcy Vertical Integration Vertical Integration Joint Ventures Joint Ventures Concentric Diversification Concentric Diversification Strategic Alliances Strategic Alliances Consortia Consortia
  112. 112. Market Development  Market development commonly ranks second only to concentration as the least costly and least risky of the 15 grand strategies  It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion  Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach
  113. 113. Product Development  Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels
  114. 114. Innovation Strategy Involves creating a new product life cycle, thereby making similar existing products obsolete
  115. 115. Repositioning &Redefining a Company’s Business Model 117 Corporate-level strategies are primarily directed towards improving a company’s competitive advantage and profitability in its present business or product line: • Horizontal Integration • Vertical Integration • Strategic Outsourcing The process of acquiring or merging with industry competitors Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products Letting some value creation activities within a business be performed by an independent entity
  116. 116. Horizontal Integration: Single-Industry Strategy 118 Horizontal Integration: the process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope. Staying inside a single industry allows a company to:  Focus resources Resources devoted to competing successfully in one area  ‘Stick to the knitting’
  117. 117. Benefits of Horizontal Integration Profits and profitability increase when horizontal integration: 1. Lowers the cost structure • Creates increasing economies of scale • Reduces the duplication of resources between two companies 2. Increases product differentiation • Product bundling – broader range at single combined price • Total solution – saving customers time and money • Cross-selling – leveraging established customer relationships 3. Replicates the business model • In new market segments within same industry 4. Reduces industry rivalry • Eliminate excess capacity in an industry • Easier to implement tacit price coordination among rivals 5. Increases bargaining power • Increased market power over suppliers and buyers • Gain greater control 119
  118. 118. Problems with Horizontal Integration 120 A wealth of data suggests that the majority of mergers and acquisitions DO NOT create value and that many may actually DESTROY value.  Implementing a horizontal integration is not an easy task • • • • Problems associated with merging very different company cultures High management turnover in the acquired company when the acquisition is a hostile one Tendency of managers to overestimate the benefits to be had in the merger Tendency of managers to underestimate the problems involved in merging their operations  The merger may be blocked if merger is perceived to: • • • Create a dominant competitor Create too much industry consolidation Have the potential for future abuse of market power
  119. 119. Vertical Integration: Entering New Industries • Backward Vertical Integration • Forward Vertical Integration • Full Integration • • • Company expands its operations into an industry that produces inputs to the company’s products Company expands into an industry that uses, distributes, or sells the company’s products • Company produces all of a particular input from its own operations • Disposes of all of its completed products through its own outlets Taper Integration • In addition to company-owned suppliers, the company will also use other suppliers for inputs or independent outlets in addition to company-owned outlets 121
  120. 120. Vertical and Horizontal Integrations Textile producer Textile producer Shirt manufacturer Shirt manufacturer Clothing store Clothing store Acquisitions or mergers of suppliers or customer businesses are vertical integrations Acquisitions or mergers of competing businesses are horizontal integrations
  121. 121. 123 Full and Taper Integration
  122. 122. Increasing Profitability Through Vertical Integration 124 A company pursues vertical integration to strengthen the business model of its core business or to improve its competitive position. 1. Facilitates investments in efficiency-enhancing specialized assets • Lowered cost structure or better differentiation. 2. Enhances or protects product quality • To strengthen its differentiation advantage through either forward or backward integration 3. Results in improved scheduling • • Makes it easier and more cost-effective to plan, coordinate, and schedule the transfer of product within the value-added chain Enables a company to respond better to changes in demand
  123. 123. 125 Problems with Vertical Integration  Increased Cost Structure • • Company-owned suppliers develop a higher cost structure than those of the independent suppliers Bureaucratic costs of solving transaction difficulties  Fast-changing Technology • • Vertical integration may lock into old or inefficient technology Prevent company from changing to a new technology that could strengthen the business model  Unpredictable Demand  Creates risk in vertical integration investments Vertical integration can weaken a business model when: • Company-owned suppliers lack incentive to reduce costs • Changing demand or technology reduces ability to be competitive
  124. 124. Strategic Outsourcing of Primary Value Creation Functions 126
  125. 125. Benefits of Outsourcing • • • • • • • 127 Lower cost structure The specialist company cost is less than what it would cost to perform the activity internally Enhanced differentiation The quality of the activity performed by the specialist is greater than if the activity were performed by the company Focus on the core business Distractions are removed The company can focus attention and resources on activities important for value creation and competitive advantage Strategic outsourcing may be detrimental when there is: • Holdup – company becomes too dependent on specialist provider • Loss of information – company loses important customer contact or competitive information
  126. 126. Corporate-Level Strategy of Diversification Diversification Strategy is the company’s decision to enter one or more new industries (that are distinct from its established operations) to take advantage of its existing distinctive competencies and business model. Types of diversification: • • Related diversification Unrelated diversification • • • Internal new ventures Acquisitions Joint ventures Methods to implement a diversification strategy: 128
  127. 127. Increasing Profitability Through Diversification 129 A diversified company can create value by: • • • • • • Transferring competencies among existing businesses Leveraging competencies to create new businesses Sharing resources to realize economies of scope Using product bundling Managing rivalry by using diversification as a means in one or more industries Exploiting general organizational competencies that enhance performance within all business units Managers often consider diversification when their company is generating free cash flow – with resources in excess of those needed to maintain competitive advantage.
  128. 128. 130 Two Types of Diversification  Related diversification Entry into a new business activity in a different industry that: • • Is related to a company’s existing business activity or activities and Has commonalities between one or more components of each activity’s value chain Based on transferring and leveraging competencies, sharing resources, and bundling products  Unrelated diversification Entry into industries that have no obvious connection to any of a company’s value chain activities in its present industry or industries Based on using only general organizational competencies to increase profitability of each business unit
  129. 129. Disadvantages and Limits of Diversification Conditions that can make diversification disadvantageous: Changing Industry- and Firm-Specific Conditions • • Future success of this strategy is hard to predict. Over time, changing situations may require businesses to be divested. Diversification for the Wrong Reasons • • Must have clear vision as to how value will be created. Extensive diversification tends to reduce rather than improve profitability. Bureaucratic Costs of Diversification • • Costs are a function of the number of business units in a company’s portfolio, and the Extent to which coordination is required to gain the benefits. 131
  130. 130. 132 Choosing a Strategy The choice of strategy depends on a comparison of the benefits of each strategy versus the cost of pursuing it: Related diversification • When company’s competencies can be applied across a greater number of industries and • Company has superior capabilities to keep bureaucratic costs under control Unrelated diversification have • When functional competenciesand few useful applications across industries • Company has good organizational design skills to build distinctive competencies Firms may pursue both strategies simultaneously
  131. 131. Sony’s Web of Corporate-Level Strategy 133
  132. 132. Restructuring 134 Restructuring is the process of divesting businesses and exiting industries to focus on core distinctive competencies in order to increase company profitability. Why restructure? • Diversification discount: investors see highly diversified companies as less attractive • Complexity and lack of transparency in financial statements • Too much diversification • Diversification for the wrong reasons • Response to failed acquisitions • Innovations in strategic management have diminished the advantages of vertical integration or diversification
  133. 133. Divestiture and Liquidation Strategies 135 • Divestiture strategy • Involves selling a firm or a major component of a firm • Reasons for divestiture • Partial mismatches between acquired firm and parent firm • Corporate financial needs • Government antitrust action • Liquidation strategy • Involves selling parts of a firm, usually for its tangible asset value and not as a going concern
  134. 134. Business Strategy
  135. 135. Levels of Strategy-Making in a Single-Business Company Business-Level Managers Business Strategy Two-Way Influence Functional Managers Functional Strategies Two-Way Influence Operating Managers Operating Strategies 2-137
  136. 136. 138 Generic Strategies Low-cost leadership Differentiation Focus
  137. 137. 139 Evaluating and Choosing Business Strategies: Seeking Sustained Competitive Advantage • The two most prominent sources of competitive advantage can be found in the business’s cost structure and its ability to differentiate the business from competitors • Businesses that have one or more resources / capabilities that allow them to operate at a lower cost will consistently outperform their competitosrs who do not have those capabilities
  138. 138. 140 Evaluating Cost Leadership Opportunities  Business success built on cost leadership requires the business to be able to provide its product or service at a cost below what its competitors can achieve
  139. 139. Business Level Strategies Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  140. 140. Bases of Competitive Advantage • Competitive strategy • The bases for achieving competitive advantage • The bases for providing best value • Porter’s generic strategies • Cost leadership • Differentiation • Focus • Bowman and D’Aveni’s market facing strategies • Provide customer needs better or more effectively than competitors • The strategy clock Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  141. 141. The Strategy Clock Note: The strategy clock is adapted from the work of Cliff Bowman (see D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.) However, Bowman uses the dimenstion ‘Perceived Use Value’. Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  142. 142. The Strategy Clock Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  143. 143. “No Frills” Strategy Low price Low price Low perceived product/service benefits Low perceived product/service benefits Focus on price-sensitive market segment Focus on price-sensitive market segment • Commodity-like products or services • Price-sensitive customers • High buyer power and / or low switching costs • Small number of providers with similar market shares • Avoiding the major competitors Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  144. 144. Low Price Strategy Lower price than competitors Lower price than competitors Maintain similar product/service benefits Maintain similar product/service benefits • Pitfalls of low price strategy • Margin reduction (competitor reaction) • Inability to reinvest leading to loss of perceived benefit of product • Need a low cost base • Low cost itself not a basis for advantage • Low cost achieved in ways that competitors cannot match to give sustainable advantage Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  145. 145. Differentiation Strategies Offering benefits different from competitors Offering benefits different from competitors Widely valued by buyers Widely valued by buyers Better products/services at same or higher price Better products/services at same or higher price • Success depends on • Identification of strategic customers and knowing what they value • Knowing the competitors • Narrow competitor base – focused differentiation • Wide competitor base – address bases of differentiation valued by customers Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  146. 146. Hybrid Strategy Simultaneously achieving differentiation and Simultaneously achieving differentiation and a price lower than competitors a price lower than competitors • Achieve greater volumes • Clarity about activities on which differentiation can be built (core competences) • Reduce costs on other activities • Entry strategy in market with established competitors Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  147. 147. Focused Differentiation High perceived product/service benefits to High perceived product/service benefits to selected market segment (niche) selected market segment (niche) Premium products, heavily branded Premium products, heavily branded • Choice to be made between focused differentiation and broad differentiation if growth required • Difficult when the focus strategy is only part of an organisation’s overall strategy • Possible conflict with stakeholder expectations • New ventures start off focused, but need to grow • Market situation may change, reducing differences between segments Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  148. 148. Sustaining Competitive Advantage Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  149. 149. Competitive Strategies in Hypercompetitive Conditions Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  150. 150. Competitive Strategies in Hypercompetitive Conditions • Competitive advantage is temporary • Rapid imitation • Not sustainable • Competitive advantage relates to • Organisation’s ability to change • Speed • Flexibility • Innovation • Disruption of market Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  151. 151. The Value Chain Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  152. 152. The Concept of a Company Value Chain  A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service  A company’s value chain consists of a linked set of value- creating activities performed internally  The value chain contains two types of activities  Primary activities – where most of the value for customers is created  Support activities – facilitate performance of the primary activities 4-154
  153. 153. Representative Company Value Chain 4-155
  154. 154. Representative Value Chain for an Entire Organisation 4-156
  155. 155. Example: Value Chain Activities Pulp & Paper Industry Timber farming Logging Pulp mills Papermaking Distribution 4-157
  156. 156. Example: Value Chain Activities Home Appliance Industry Parts and components manufacture Assembly Wholesale distribution Retail sales 4-158
  157. 157.  A method of visually mapping a product's production path (materials and information) from "door to door".  Value stream is all the actions (both value added and non-value added) currently required to bring a product through the main flows essential to every product:
  158. 158. Value Stream Mapping  helps to visualize more than just the single-process level  helps see more than waste - it helps see the sources of waste in your value stream  provides a common language for talking about manufacturing processes
  159. 159.  ties together lean concepts and techniques  forms the basis of an implementation plan  shows the linkage between the information flow and the material flow  is much more useful than quantitative tools and layout diagrams that produce a tally of non-value added steps, lead time, distance traveled, the amount of inventory, and so on.
  160. 160.   To diagnose strategic capability To understand how value is created or lost in terms of the activities undertaken The value chain describes the activities within The value chain describes the activities within and around an organisation which together and around an organisation which together create a product or service create a product or service
  161. 161.     Identifies clusters of activities providing particular benefit to customers Highlights activities which are less efficient and which might be de-emphasised or outsourced Requires managers to think about the role of such activities Can be used to identify the cost and value of activities
  162. 162. Characteristics of Value Chain Analysis  Combined costs of all activities in a company’s value chain define the company’s internal cost structure  Compares a firm’s costs activity by activity against costs of key rivals  From raw  Price materials purchase to paid by ultimate customer  Pinpoints which internal activities are a source of cost advantage or disadvantage 4-164
  163. 163. An Activity Map Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
  164. 164. Global Strategy
  165. 165. Globalization 167  Globalization refers to the strategy of approaching worldwide markets with standardized products  Awareness of the strategic opportunities faced by global corporations and of the threats posed to them is important to planners in almost every domestic industry  Understanding the nuances of competing in global markets is rapidly becoming a required competence of strategic managers
  166. 166. What Is the Motivation for Competing Internationally? Gain access to new customers Obtain access to valuable natural resources Help achieve lower costs Capitalize on core competencies 7-168 Spread business risk across wider market base
  167. 167. Reasons for Going Global           PROACTIVE Additional resources Lowered costs Incentives New, expanded markets Exploitation of firmspecific advantages Taxes Economies of scale Synergy Power and prestige Protect home market      169 REACTIVE Trade barriers International customers International competition Regulations Chance
  168. 168. At the Start of Globalization    External and internal assessments are conducted before a firm enters global markets External assessment involves careful examination of critical features of the global environment Internal assessment involves identification of the basic strengths of a firm’s operations 170
  169. 169. How Markets Differ from Country to Country  Consumer tastes and preferences  Consumer buying habits  Market size and growth potential  Distribution channels  Driving forces  Competitive pressures One of the biggest concerns of companies competing in foreign markets is whether to customize their product offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide. 7-171
  170. 170. 172 Factors That Drive Global Companies       Global Management Team Global Strategy Global Operations and Products Global Technology and R&D Global Financing Global Marketing
  171. 171. Basic Entry Decisions • • • • • • 173 Which overseas markets to enter (WHERE) Assessment of long-run profit potential Balancing the benefits, costs, and risks associated with doing business in a country Timing of entry (WHEN) First-mover advantages: preempt and build share First-mover disadvantages: pioneering costs Scale of Entry (HOW) Entering on a large scale is a major strategic commitment Benefits and drawbacks of small-scale entry
  172. 172. 174 The Choice of Entry Mode 1. Exporting Most manufacturing companies begin their global expansion as exporters and later switch to one of the other modes. 2. Licensing A foreign licensee buys the rights to produce a company’s product for a negotiated fee; licensee puts up most of the overseas capital. 3. Franchising Franchising is a specialized form of licensing. The franchiser not only sells intangible property, but also insists that franchisee agrees to follow strict rules as to how it does business. 4. Joint Ventures Typically a 50/50 venture – a favored mode for entering a new market 5. Wholly-Owned Subsidiaries Parent company owns 100% of subsidiary’s stock – setup or acquire
  173. 173. Escalating Commitments to International Markets 175
  174. 174. Competitive Strategies for Firms in Foreign Markets 1. 2. 3. 4. 5. 6. 7. Niche Market Exporting Licensing and Contract Manufacturing Franchising Joint Ventures Foreign Branching Equity Investment Wholly Owned Subsidiary 176
  175. 175. Advantages and Disadvantages of Different Entry Modes 177
  176. 176. 178 Four Basic Strategies     Companies typically choose among the four main global strategic postures when competing internationally. The appropriateness of each strategy varies with the extent of pressures for cost reduction versus local responsiveness.
  177. 177. 179 Choosing a Global Strategy  Standard Globalization Strategy • Reaping the cost reductions that come from economies of scale and location economies • Business model based on pursuing a low-cost strategy on a global scale Makes the most sense when there are strong pressures for cost reduction and the demand for local responsiveness is minimal  Localization Strategy company’s goods • Customizing thematch to tastes andor services sointhat thy provide a good preferences different national markets Most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences and where cost pressures are not too intense
  178. 178. 180 Choosing a Global Strategy  Transnational Strategy • Difficult to pursue due to its conflicting demands • Business model that simultaneously: Achieves low costs » Differentiates across markets Fosters a flow of skills between subsidiaries Building an organization capable of supporting a transnational strategy is a complex and challenging task.  International Strategy that sell products that serve • Multinational companiesdifferentiate) and do not face universal needs (minimal need to significant competitors (low cost pressure). In most international companies the head office retains tight control over marketing and product strategy.
  179. 179. Strategy Implementation
  180. 180. Components of Strategic Management Process STRATEGY FORMULATION Existing Business Model FEEDBACK Mission , Vision, Values & Goals External Analysis: Opportunities & Threats SWOT Strategic Choice Internal Analysis: Strengths & Weaknesses Functional – Level Strategies Business - Level Strategies Global Strategies Corporate – Level Strategies STRATEGY IMPLEMENTATION Designing Organization Structure Governance and Ethics Designing Organization Culture Designing Organization Controls
  181. 181. Strategy Formulation vs. Implementation  Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organization’s goals and of a specific strategic plan  Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
  182. 182. Strategy Implementation • Designing organizational Structure • Designing Control systems Structure  Market and output controls  Bureaucratic controls  Control through organizational culture  Rewards and incentives Culture • Matching Strategy, Structure, Culture and Controls  Congruence (fit) among strategy, structure, culture and controls Controls
  183. 183. Implementing Strategy Tools  Leadership  Structural design  Information and control systems  Human resources Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
  184. 184. Tools for Putting Strategy into Action Environment Organization Strategy Leadership  Persuasion  Motivation  Culture/values Structural Design Human Resources  Organization Chart   Teams Recruitment/selection   Centralization Transfers/promotions Decentralization,  Training  Facilities, task design  Layoffs/recalls Information and Control Systems  Pay, reward system  Budget allocations  Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. Information systems Performance
  185. 185. Why Structure Follows Strategy  Changes in strategy typically require a new or modified organization structure  A new strategy often involves different skills, different key activities, and different staffing and organizational requirements  Hence, a new strategy signals a need to reassess and often modify the organization structure  How work is structured is a means to an end – not an end in itself! 11- McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
  186. 186. Tall and Flat Structures 13-
  187. 187. Functional Structure 13-
  188. 188. Market Structure 13-
  189. 189. Matrix Structure 13-
  190. 190. Product-Team Structure 13-
  191. 191. BUILD A STRATEGYSUPPORTIVE CORPORATE CULTURE McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
  192. 192. Corporate Culture Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
  193. 193. Features of the Corporate Culture at Wal-Mart  Dedication to customer satisfaction  Zealous pursuit of low costs  Frugal operating practices  Strong work ethic  Ritualistic Saturday morning meetings  Executive commitment to  Visit stores  Listen  Solicit 13- to customers employees’ suggestions
  194. 194. Features of the Corporate Culture at Microsoft  Long work hours of programmers  Emotional peaks and valleys in encountering and overcoming coding problems  Exhilaration of completing a complex program on schedule  Satisfaction of working on cutting-edge projects  Rewards of being part of a team responsible for a popular new software program  Tradition of competing aggressively 13-
  195. 195. Steps in Designing an Effective Control System 13-
  196. 196. Levels of Organizational Control Controls at each level should provide the basis on which managers at lower levels design their controls systems. 13-
  197. 197. Types of Strategic Control Systems  Personal Control Managers question and probe to better understand subordinates. The result is more possibilities for learning to occur and competencies to develop.  Output Control Set appropriate performance goals for each division, department, and employee, then measure actual performance relative to these goals.  Behavior Control Establish standardization, predictability, and accuracy by creating a system of rules to direct actions and/or behaviors of divisions, functions, or individuals. 13-
  198. 198. McKinsey 7-S framework model The 7-S framework of McKinsey is a Value Based Management (VBM) model that describes how one can holistically and effectively organize a company. Together these factors determine the way in which a corporation operates.
  199. 199. McKinsey 7S Framework
  200. 200. Shared Value The interconnecting center of McKinsey's model is: Shared Values. What does the organization stands for and what it believes in - Central beliefs and attitudes.
  201. 201. Strategy Plans for the allocation of a firm’s scarce resources, over time, to reach identified goals, Environment, competition, customers
  202. 202. Structure The way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc.
  203. 203. System The procedures, processes and routines that characterize how important work is to be done: financial systems; hiring, promotion and performance appraisal systems; information systems
  204. 204. Staff Numbers and types of personnel within the organization
  205. 205. Style Cultural behaviour of the organization and how key managers behave in achieving the organization’s goals Management Styles.
  206. 206. Skills Distinctive capabilities of personnel or of the organization as a whole Core Competences.
  207. 207. Managing Strategic Change The only constant is change. Success requires adapting strategy and structure to a changing world. The feedback loop in Corporate strategic planning. Operational Business Functional
  208. 208. Key Steps to Implement Strategic Change • Sense the need for strategic change • Build awareness of the need to change and learn • Foster debate • Create consensus • Assign responsibility • Allocate resources • Act quickly